The Dividend Cafe - The DC Today - Wednesday, January 4, 2023

Episode Date: January 4, 2023

The new wing of the TBG offices in Newport is now open. We are excited for you to come see it. I believe it is now 28 out of our 50 people that are based in Newport, soon to be 30 out of 52 (we are hiring two new Tax Services people this month). The new space gives us extra space we needed for our Solutions Department from last year’s growth, more space for additional future growth, new offices for key partner-advisors, additional space for our growing Tax Services Department, and additional client conference room meeting space. Come visit any time! Today’s market action was up and down but mostly up … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Welcome to the DC Today, your daily market synopsis of the Dividend Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. Well, hello and welcome to the DC Today. It's Wednesday, January 4th. It's kind of a crazy day. And so I'm recording this a little quickly, but I do want to give you a quick rundown of markets. Markets ended up on the day 133 points. That was a 0.4% increase for the Dow. The S&P was up more at 0.75% and the Nasdaq just below that at 0.69%. But really, I think the biggest story, the 10-year treasury yield down another 10 basis points, down to 3.69%. So you have seen the 10-year bond rally huge in the first two days of the new year, with the yield down 20 basis points in two days, helping to reprice a lot of risk assets. Every sector was in the green today. Real estate,

a very rate sensitive area, was up 2.28%. Energy was the worst performing sector and it was up six basis points. What's more noteworthy is not that energy was the bottom performer and not that it was positive, but barely, but that oil was down almost 5%. Now you have some role going right now in the way that the forward futures curve works, but WTI closed at 73.22, down 4.8% on the day. And yet the energy sector was up on the day. By way of economic data real quick, mortgage applications were down 13% last week versus two weeks earlier. So you did see the 30-year average mortgage rate go back up to 6.58%. I think it had gotten as low as 6.3 something two weeks earlier.

But more importantly is that it started the year at 3.3%. So you essentially had it exactly double from 3.3 to 6.6 from week one of 2022 to week one of 2023. ISA Manufacturing came out a few hours after the market opened and was in contraction territory again for the second month in a row, it went to 48.4. That's about what was expected, but new orders were down two points. So again, economic slowdown, weakness, and the ISM numbers not painting a great picture at all. picture at all. In the DC Today today, there is a question about why bond prices go higher when yields go lower and vice versa. And I think it'll be explained in a way that'll make sense when you think about a particular asset. So check out the dctoday.com. By way of markets real quick, I just want to make a point that the largest cap companies, the top five largest companies in the S&P 500 are still 19% of the S&P 500.

Okay. 1% of the companies are 19% of the index. Now that's actually lower than back in, if you recall the summer of 2020, when I think it got up to around, what was it? I don't think I put the number here in my notes, about 24%. Yeah, 24%. But you know, it's really averaged going back many, many, many years, about 14%. And for many of those years, it was really 10 or 11%. So look, in a cap-weighted index, you're always going to have some top-heavy companies. But there's still a significant aspect at a much higher weighting than is historically average. And that's either a sign of additional

risk or a sign of opportunity. If you think those five companies are going to rally, it probably helps the index. If you think there's a struggle there, it hurts. But whether it's one or the other, it feeds on itself. That's the point I want to make is that either buying begets buying or selling begets selling and a loop gets created one way or the other. For the very reason I'm referring to, 62% of active large cap managers beat the index last year. And you go, what do you mean for the very reason? Well, the reality is that all you had to do was own less of those five companies or own none of some of those companies, and you very likely did better. Now, I've already talked about how just simply over-weighting energy relative to the index was an easy way last year. But you had one of the highest years in the last 20 years of the number of large cap managers outperforming the index because of these types of

things where right now the high cap-weighted areas just provide an opportunity to add value. And I would keep an eye on that. I know we are, we don't, we don't like buying the most popular things in the store. I got to leave it there just because of some time constraints today. Reach out with any questions, please. Questions at thebonsongroup.com. And certainly when you get that white paper in Dividend Cafe on Friday, feel free to fire away, pepper us with questions, because we have a lot of opinions that are countercultural, that you may disagree with, that are contrarian. And we invite some debate, invite some conversation to help clarify our point of view. We are working tirelessly right now to really get a lot of things right coming into the new year. It's a very challenging economic time.

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